Tax
season generates enough anxiety for many without adding a serious new
concern: is your most vital personal financial information about to go
public worldwide to be used by who knows whom for who knows what purposes
because you had you taxes done professionally?

This
spring, an estimated 200,000 federal and state tax returns, all of which
contain sensitive personal information, were completed offshore. This is not
a new phenomenon; over the last few years accounting firms around the U.S.
have sent a growing portion of simple tax prep work overseas.

The
accounting industry has largely embraced offshoring as the future of tax
preparation. CCH, the industry's leading provider of tax information and
software, endorses offshoring as it reduces or eliminates the "tax season
staffing spikes in most CPA" firms and results in lower per-unit cost for
tax preparation.

Unfortunately, the cheaper wages paid workers in the developing countries
where the work is being relocated are not being passed on to the tax paying
consumer. The cost to the consumer for standard tax preparation is
practically unchanged even as more returns are prepared abroad--
approximately $150 in 2004 and 2003 and usually based primarily on the tax
refund received by the customer.

More
alarming is the implication for the privacy of consumers' most vital
financial information when accounting work is offshored beyond the reach of
U.S. privacy law. A recent study by Public Citizen's Global Trade Watch
describes the threat and proposes some solutions.

The
serious privacy problems surrounding offshoring of work involving
information subject to U.S. federal law privacy protections have been
highlighted through numerous incidents and accusations. While these
unquestionably also plague outsourcing in general, they are particularly
problematic with regard to overseas providers in terms of both a lack of
legal protections and access to civil justice systems in cases of abuse.

In Ohio,
allegations that citizens' birth records had been sent to a facility in Sri
Lanka led to the company being barred from state contract work for 15 months
and prompted a federal investigation in 2001 - which was soon followed by
more accusations that confidential information from the records of hundreds
of thousands of Ohioan veterans had been given to an Indian data-processing
company.

In 2003,
a medical transcriber in Pakistan threatened to post patients' records
on-line unless the University of California San Francisco (UCSF) Medical
Center paid the wages owed to her by the U.S. subcontractor that had sent
the work to her. The hospital's transcription work had already been
subcontracted from a Sausalito-based transcription firm to two U.S. sources
before being subcontracted a third time to the transcriber in Pakistan.
Heartland Information Services, an Ohio-based company that offshores medical
records work to India, received a similar threat from a group of disgruntled
employees in Bangalore, India. The Indian workers said that they would
release confidential records unless they received a cash payoff from the
company. The workers were soon apprehended with company training documents -
but no patients' files were in their possession.

Such a
threat and act of extortion also could have come from a medical transcriber
in the U.S. However, a U.S.-based transcriber would be highly unlikely to
issue such a threat given the legal recourse available to patients in the
U.S. if their privacy is violated. In contrast, the only liability in the
Pakistani transcriber case would reside with the U.S. companies having
created no disincentive for the bad conduct by the overseas provider.

But what
are privacy issues that fall under tax preparation? For starters, personal
information on the tax return includes name, home or e-mail address, social
security number, as well as your employer and your credit, pension and
investment history. Sensitive personal information including medical and
health conditions that might qualify for deductions, as well as tax
documents pertaining to your mortgage, bank accounts and other financial
transactions are required to fill out the forms. Your charitable deductions
might reveal your racial or ethnic origin, political opinions, religious
beliefs, union membership, or sexual preferences.

The
American Institute of CPAs knows it has a problem on its hands and will for
the first time in thirty years revise its code dictating CPAs legal and
ethical responsibilities regarding outsourcing and obligations to their
customers.

As we
have seen time and again in this era of corporate scandals, when industry
disciplines itself, a dangerous regulatory gap grows with worrisome consumer
safety and economic implications. The practice of professional offshoring
has gotten far ahead of the consumer protections. The only current
"regulatory" system is a silent assumption that your privacy and the
qualifications of those doing your taxes are assured by private companies.
It is not enough.